The climate-themed bond market is much broader and deeper than previously thought, with $174 billion worth of bonds outstanding, according to a report commissioned by the HSBC Climate Change Center of Excellence.
The Climate Bonds Initiative, which prepared the report, only included bonds issued since 2005 – the year the Kyoto Protocol came into force. The report, Bonds and Climate Change: The State of Market in 2012, identifies seven climate-themed areas in which bond investors can tap current opportunities: energy, transport, buildings and industry, waste, water, agriculture and forestry.
The Climate Bonds Initiative then analyzed how the proceeds of the identified bonds were used. Fully dedicated bonds were classified as climate-themed bonds.
The study found over 1,000 outstanding climate-themed bonds, which came from 207 issuers. Corporations, including state-owned and private companies, issued 82 percent of the total, followed by development banks and financial institutions with 13 percent of the bonds. Project bonds accounted for 3 percent and municipal bonds were 2 percent.
The climate-themed bond market is dominated by $119 billion of transport bonds, nearly all of that for railway projects, followed by $29 billion of low-carbon energy bonds, HSBC said. The report also found that bonds linked to the expansion of wind and solar power account for two-thirds of the $29 billion in energy bonds.
UK institutions have issued the largest amount of climate-themed bonds, with 23 percent of the global total. France comes in second with 17 percent. Europe accounts for 67 percent of the global market, followed by the US with 17 percent and Russia, Canada and China, all at around three percent each.
There could be another $204 billion of outstanding bonds from issuers with more than 50 percent of revenues and activities linked to the climate economy, HSBC said. The report also identifies a further $373 billion of bonds “conditionally aligned.” These are bonds issued from sectors or technologies linked to the climate economy, but where more disclosure is required to determine which bonds can be considered climate-themed.
HSBC estimated that $10 trillion in cumulative capital investments will be required globally between 2010 and 2020 to drive low-carbon energy alone. Of that amount, $6 trillion could be required in terms of bank loans and bonds, assuming the historical 60:40 split between debt and equity is followed.
Last year, the Climate Bonds Initiative released a prototype Climate Bond Standard, a screening tool for investors and governments to support investment in the low carbon economy. Industry experts such as the International Finance Corporation, Standard & Poor’s, Aviva Investors and KPMG helped develop the prototype.